There is a widespread perception that under-capitalised banks can prolong crises by misallocating credit to weaker firms and restraining credit to healthy borrowers. This column explores the extent and consequences of credit misallocation in Italy during and after the Eurozone Crisis. Bank undercapitalisation may have been costly in terms of misallocation of capital and productive efficiency in the medium term due to the higher exit of healthy firms, but it had at best a limited role in aggravating the recession induced by the Eurozone Crisis.

Since 2011, EU macroeconomic surveillance has aimed at preventing or correcting the type of imbalances that were responsible for the Global Crisis. Surveillance under the Macroeconomic Imbalance Procedure implies regular reports and policy recommendations monitored by the Commission, and the possible activation of economic sanctions. This column shows that, despite the procedure not having been used to its full extent so far and the sanctions stage not having been reached yet, the surveillance and recommendations have had an impact on policies in the first years of implementation.

The Global Crisis led to a sharp contraction and long-lasting slump in both Eurozone and US real activity, but the post-crisis adjustment in the Eurozone and the US shows striking differences. This column argues that financial shocks were key determinants of the 2008-09 Great Recession, for both the Eurozone and the US. The post-2009 slump in the Eurozone mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment linked to the poor health of the Eurozone financial system. Mono-causal explanations of the persistent slump are thus insufficient. Adverse financial shocks were less persistent for the US.

Central banks are now moving towards exiting from quantitative easing and other unconventional monetary policies. This column highlights a 2013 CEPR/ICMB report that examined the policy challenges surrounding this difficult and unprecedented task. It explores ways policymakers could handle exit and its long-run implications. This is part of the CEPR Flashbacks series that highlights the relevance of past CEPR reports to today’s challenges.

Our CEPR Flashbacks highlight past CEPR reports relevant to today’s challenges. This column highlights a report first published in 2013, which examined how the exit from unconventional monetary policies could be handled by policymakers, what the post-exit world will look like, and the long-run implications for central banks.

European banks are in crisis for structural and cyclical reasons. In this video, Alessandro Penati discusses the role of technology for banks. This video was recorded at the Brevan Howard Centre for Financial Analysis in September 2016.

Is it possible to deal with the European banks' crisis in a timely way? Ashoka Mody stresses the urgent need for actions to downisze the European banking sector. This video was recorded at the Brevan Howard Centre for Financial Analysis in September 2016.

A common explanation for the growth in unemployment in southern Europe after the Great Recession is lack of flexibility in over-regulated labour markets. This column examines wage adjustment in regulated and unregulated labour markets in Italy during the recent crisis. Using data on immigrant workers, it shows that before the crisis wages in the formal and informal sectors moved in parallel. During the crisis, however, formal wages did not adjust downwards, while informal labour wages did. Greater flexibility in wages in the formal market could slow the decline in employment.

The Eurozone Crisis has taken a significant toll – both economic and political – on EU member states as well as the Union as a whole. This column identifies three elements that are key to a working solution for continued union: overcoming the intergovernmental method that has dominated EU decision‑making since the crisis, avoiding the seemingly easy route of blaming all evils on ‘Brussels’, and a more unified external representation in global economic governance.

The ECB is under fire from all sides for its inability to stimulate Europe's economies. This column puts the case for an informal European ‘praesidium’ within the Eurogroup to coordinate wider stimulus and reform measures. This will inevitably lead to the appointment of a European finance minister – the Eurozone's equivalent of Alexander Hamilton, the first Treasury Secretary in the history of the US.

The fragmentation of financial systems along national borders was one of the main handicaps of the Eurozone both prior to and in the initial phase of the crisis, hindering the shock absorption capacity of individual member states. The EU has taken important steps towards the deeper integration of Eurozone financial markets, but this remains incomplete. This column argues that a fully-fledged financial union can be an efficient economic shock absorber. Compared to the US, there is significant potential in terms of private cross-border risk sharing through the financial channel, more so than through fiscal (i.e. public) means.

The recession has left a legacy of non-performing loans on Italian banks’ balance sheets. Policymakers in Italy understand well the importance of correcting their banks’ problems to foster a healthy economic recovery. This column argues that reforming the judicial and extra judicial processes for recovering collateral offers the potential of improving banks’ balance sheets and enhancing financial stability, not only by increasing loan collections directly, but also by improving borrowers’ incentive to service their existing debt.

The Greek crisis is one of the worst in history, even in the context of recorded ‘trifecta’ crises – the combination of a sudden stop with output collapse, a sovereign debt crisis, and a lending boom/bust. This column quantifies the role of each of these factors to better understand the crisis and formulate appropriate policy responses. While fiscal consolidation was important in driving the drop in output, it accounted for only for half of that drop. Much of the remainder can be explained by the higher funding costs of the government and private sectors due to the sudden stop.

To make the no-bailout clause credible and to enhance the effectiveness of crisis assistance, private creditors should contribute to crisis resolution in the Eurozone. This column proposes a mechanism to allow for orderly restructuring of sovereign debt as part of ESM programmes. If debt exceeds certain thresholds, the mechanism triggers an immediate maturity extension. In a second stage, a deeper debt restructuring could follow, depending on the solvency of a country. The mechanism could be easily implemented by amending ESM guidelines.

This second column in a two-part series takes a closer look at the proposals in the Five Presidents’ Report for Fiscal, Banking, and Capital Markets Unions and much closer political integration among Eurozone countries. It goes on to give evidence of the failure of financial markets to price risk correctly prior to the Eurozone Crisis. By pricing risks better, financial markets may be able to provide the discipline required to avoid future crises in the Eurozone without the need for greater political interference in national fiscal policy-making as proposed in the Report.

European Monetary Union was designed to promote economic growth, price stability, full employment, and political integration. It can be argued that so far, it has achieved none of these and has in fact made things worse. The Five Presidents' Report contained a set of proposals for making the single currency sustainable, based on giving up more national independence. This column – the first in a two-part series asking whether future crises might be avoided through market forces without the need for the sort of procrustean proposals offered in the Report – examines the causes of the Eurozone Crisis.

In light of the Eurozone Crisis, some countries have implemented reforms to collective wage bargaining institutions, which can be responsible for wage rigidities that are problematic in the face of rising unemployment. This column describes collective wage bargaining in France and how national minimum wage increases are transmitted to wage floors set by industry-level agreements. An increase in the national minimum wage leads to an increase in negotiated industry-level wage floors, which firms then use as references for their wage policy. This might partly explain why French base wages have continued to increase despite recent rising unemployment.

Since the Eurozone Crisis a host of monetary and fiscal instruments have been used to try to reinvigorate growth and achieve financial stability, with mixed results. Basel III’s counter-cyclical capital buffer (CCB) is one such instrument which was met with scepticism. This column uses evidence from the Swiss economy to show that given the right circumstances and political will, the CCB can achieve financial stability.

The turbulence experienced by the Eurozone in 2010-12 highlighted the shortcomings of the currency union. This column suggests that the crisis was exacerbated by a combination of a lack of market adjustment mechanisms, rapid financial integration, and underlying design issues. While substantial progress has been made to address some architectural issues, minimal elements of a fiscal union are still needed in our view to increase the union’s resilience to shocks and to prevent the re-emergence of broader economic and financial stress.

Economists continue to debate how to safeguard the Eurozone, with some countries exiting the Crisis and some still reeling from it. This column, by members of the German Council of Economic Experts, concludes that reforms have mostly moved the Eurozone in the direction of ‘Maastricht 2.0’, stabilising the Eurozone. But it’s clear that more needs to be done.

Was the euro a straitjacket that caused an inevitable crisis? Or would earlier action have staved off a debt catastrophe? In this Vox Talk, Martin Sandbu – author of "Europe’s Orphan: The Future of the Euro and the Politics of Debt" – argues that rather than blaming the euro for the political and economic failures in Europe since the Global Crisis, the responsibility lies firmly on the authorities of the Eurozone and its member countries.